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TPV Technology Ltd’s plan to take over the loss-making television business of Philips Electronics NV will help it gain market share, but analysts said it faces a bumpy road ahead in an industry that is facing keen competition and weak margins.
TPV said it was suspending trading in its shares on Wednesday, a day after Philips said it had entered a deal to transfer its TV business to the Chinese company.
Philips has signed an agreement to transfer its TV business to a joint venture (JV) with TPV, ending doubts about the deal being scrapped due to the deteriorating global TV market.
Analysts said it was the right direction to enlarge market share in the industry, although it faces challenges including a weak global economy and rising costs.
“(The actual impact) depends on how much effort TPV has to make in order to turn around the business”, said Steve Chow, an analyst at Kingsway Group Research.
UOB Kay Hian Holdings Ltd said in a research note that it was difficult for TPV to turn around Philips’ TV operations in a short period amid the current macro environment.
“The JV with Philips will put pressure on TPV’s financial position,” it said.
In 2003, another Chinese company TCL Multimedia Technology Holdings bought France’s Thomson TV business. TCL has been suffering from losses for most of the past five years due to weak margins of its TV business.
Philips was once a global leader for televisions, but its market share has been eroded by new players in the business, such as Sony Corp, Samsung Electronics Co Ltd and LG Electronics Inc, which are rolling out sleeker LCD (liquid crystal display) TV sets.
Samsung, LG Electronics, Sony, Panasonic Corp and Sharp Corp were the top five flat-panel TV vendors by revenue in the second quarter, data from DisplaySearch showed.
TPV ranked third in terms of LCD TV shipments in the first half of 2011, according to its own data.
TPV said in a filing to the Hong Kong stock exchange that the share suspension was due to a pending statement regarding a substantial acquisition, but gave no further details.
Philips said on Tuesday that TPV would own 70 percent of the new company and Philips 30 percent, which would pay the Dutch company a minimum of 50 million euros ($68.86 million) annually in royalties starting from the second year.
The deal is scheduled to close in the second quarter of 2012 and all the 3,500 TV-related jobs would be transferred to the joint venture.
“This partnership is an important step in realizing our growth ambitions in the TV space,” TPV chairman and chief executive officer Jason Hsuan said in a joint statement with Philips.